The Revival of Neoliberalism and the Power of Capital in Latin America

The 10 richest men in the world: Brazil and Mexico are represented

The pink tide in Latin America, which saw a slew of left leaders elected throughout the region during the first decade of the century, has pretty much come to an end. Right wing presidents have been elected in Chile (2010 and 2017) and Argentina (2015). In Brazil, the political right gained executive power with the impeachment of left president Dilma Rousseff. This development was followed by the election of right populist, Jair Bolsonaro, as president in 2018. While a left president was recently re-elected in Ecuador, policies are becoming increasingly business friendly. The main outlier is Mexico, which recently elected left President Andrés Manuel López Obrador (AMLO). That government is already facing rising business opposition.

The Growth of (Latent) Business Power under Neoliberalism

Brazilian contruction entrepreneur Marcelo Odebrcht and former president Lula

Washington Consensus prescriptions (neoliberal policies involving such policies as labor flexibilization and privatization), which remained strongly supported by business throughout the period of left rule, have resurfaced. The increased power of business during neoliberal and left regime years and its strong commitment to the original Washington consensus policies, went largely unobserved by most scholars, who devoted much greater attention to popular mobilization and the policies of left regimes. In Brazil, widely considered to have had one of the most moderate left regimes in the region, the political tension between business and the state was fairly muted during the period of Labor Party rule from 2003 to 2016. Notably, however, the political right and the business community continued to call for privatization, further deregulation, labour flexibilization, and a reduction in corporate taxes. Countries with more radical left regimes—Ecuador, Bolivia, and especially Venezuela—experienced even greater strain in relations with their business sectors through the 2000s. Business opposition to left policies usually saw business either refusing to invest (Ecuador and Bolivia) or disinvesting (Venezuela). It was,largely the dynamism of the commodity export boom that facilitated economic growth and a flow of revenue to improve social programs. However, this growth and the ensuing poverty reduction papered over the reality of the latent increased power of capital. The consequence of both market liberalization during the 1990s and the rise of the left during the 2000s was the rising power of domestic business and their foreign business allies throughout the region.

Market liberalizing reform increased the structural power of business substantially. While business ownership was already heavily concentrated in most countries, the market liberalizing measures of the 1990s increased that concentrated ownership even further. This occurred because only big national conglomerates (often with multinational allies) were in a position to buy the large public companies put up for auction. In addition, it was also only countries’ biggest companies that were capable of expanding into export markets, having been given various government incentives, such as tax advantages, to do so. With the withdrawal of the state from economies through the 1990s, and the increase in the role of the private sector, Latin American business, now became the main driver of economic growth, a role that enabled it to discipline the state like never before by either failing to invest or disinvesting. However, this power remained latent during the commodity boom (from the early 2000s to about 2013), a period distinguished by a rise in both Chinese investment and demand for resources. With the drop in the price and demand for commodities, however, Latin America’s business groups are now able to impose their demands because their cooperation is required to spur economic growth.

The Political Mobilization of Business

At the same time, the rise and expansion of neoliberalism followed by the rise of the political left prompted political mobilization on the part of Latin American business and its increased participation in politics. In most cases, the transition to electoral democracy coincided with neoliberal economic reforms; both of these processes witnessed the increasing involvement of powerful members of the private sector and their representative organizations in politics. With the rise of the political left, the business sector was further motivated to participate in formal politics through running for Congress for right wing political parties. The result has been that business people increased their proportion of seats in a number of Latin American countries, including those with left regimes (Chile, Brazil, and Bolivia). Entrepreneurs also increased their representation among the highest ranks of right wing political parties, their participation in the most important positions in senates and lower chambers, and in top state political/bureaucratic positions, particularly in ministries of finance. Entrepreneurs also had direct channels to the highest reaches of power through their entrepreneurial associations.

The Resurgence of Neoliberalism and Business Power

The decline of commodity prices and the ensuing economic havoc has provided the ideal opportunity for business to assert both its power and its commitment to neoliberalism. Upon taking power in 2016, Brazil’s right wing President, Michel Temer, quickly developed plans to privatize the state-owned electricity company, airports and other sectors, to deregulate the state petroleum company, and to further open the economy to international trade and investment. He also planned to reform the labor laws to achieve greater labor flexibilization, making it easier to hire and fire—all policy proposals that generated fierce political opposition. Newly elected populist right President Jair Bolsonaro, supported by the country’s powerful business community, has promised privatizations and lower business taxes.

Ecuadorian President Lenín Moreno meeting with construction entrepreneurs

As detailed in an earlier post, Argentine President Mauricio Macri, elected in 2015, re-introduced a number of the neoliberal policies rejected by his left predecessor. In June of 2018, his government signed an agreement with the IMF in which the government promised to accelerate the reduction of the country’s public deficit but both the IMF and the Argentine government claim that social programs for the poor will not be touched. Nevertheless, there have been mass protests in Argentina against this agreement. In Ecuador, President Lenín Moreno, Raphael Correa’s successor, has announced business friendly policies (tax, labor and public spending reforms) aimed at reducing the role of the state and increasing private investment.

AMLO’s Dilemma

AMLO meeting with the head of one of Mexico's business associations

Already we can see efforts by Mexico’s powerful business sector to discipline recently elected left President Andrés Manuel López Obrador (AMLO). This has occurred despite AMLO’s overwhelming electoral majority and his party’s control of both houses and despite his best efforts to calm business fears by creating a business advisory council prior to his election. AMLO’s proposals are imminently sensible: policies to promote job creation and increased transparency to reduce corruption. His inaugural speech did however declare neoliberalism dead—a comment that might reasonably be interpreted as an accurate observation given the abysmal record of neoliberal reforms in achieving economic growth and poverty reduction. AMLO also announced the suspension of oil contracts granted to foreign oil companies due to their failure to invest, and the termination of an airport project owing to the high degree of corruption believed to be involved in the project.

The reaction of the country’s private sector was swift. Responding to AMLO’s inaugural speech and to his recently declared energy policy, powerful businessman, Claudio X González declared that AMLO’s “anti-free market views” showed that the new president favored “a repressive, statist, interventionist vision” that would discourage private sector investment and economic growth. A number of media outlets declared AMLO to have Chavez-like tendencies and to be a greater threat to democracy than the incoming President of Brazil, a politician who has declared his support for Brazil’s period of military dictatorship. Investor confidence has declined. Without co-operation from the private sector, AMLO is unlikely to meet most of his goals.

Latin America’s business sector and its foreign allies are now more powerful than ever. Hence, while popular organizations will continue to resist a return to the neoliberal agenda, their struggles will meet formidable resistance.